UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission File Number 0-16894
SUPERMAIL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0423053
(State of Incorporation) (IRS Employer Identification No.)
2201 Park Towne Circle, Suite 200, Sacramento, California 95825
(address of principal executive offices)
Issuer's telephone number, including area code (916) 483-1131
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check mark the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The total number of shares outstanding of each of the issuer's
classes of common stock as of November 14, 1996, was 7,646,853 of a single
class of $.06 par value per share common stock.
Documents Incorporated by reference:
1. Portions of the Report on Form 10-KSB(SEC File No. 0-16894) dated
December 31, 1995, are incorporated by reference in Part I.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Supermail International, Inc.
Table of Contents
Pages
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at
September 30, 1996 3 - 4
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
Current assets:
Cash and equivalents $2,791,192
Trade accounts receivable, less allowance for
doubtful accounts of $488,074 265,530
Officer receivables 29,249
Notes receivable 154,000
Investment in marketable securities 199,999
Prepaid expenses 195,062
Other current assets 78,073
---------
Total current assets 3,713,105
---------
Property and equipment, net 1,202,506
---------
Intangible assets:
Covenants not to compete, net 50,190
Goodwill, net 297,317
Other intangibles, net 283,053
---------
630,560
---------
Other 98,619
---------
$5,644,790
=========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
September 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized leases payable $ 12,816
Accounts payable 354,931
Advances from officer 31,513
Accrued liabilities:
Accrued payroll, payroll taxes and benefits 106,403
Accrued money order and money transfer drafts payable 1,805,388
Other 39,499
----------
Total current liabilities 2,350,550
Capitalized leases payable, net of current maturities 11,725
Deferred income 1,954,564
----------
Total liabilities 4,316,839
----------
Commitments
Stockholders' equity:
Preferred stock - no par value; authorized 50,000 shares;
none issued and outstanding
Common stock - par value $.06 per share; authorized
15,000,000, issued and outstanding 7,646,853 458,811
Additional paid-in capital 19,204,375
Accumulated deficit (15,309,673)
----------
4,353,513
Less receivables from officers, directors and others
related to issuance of common stock - 1,107,666 shares
held under notes receivable (3,025,562)
----------
Total stockholders' equity 1,327,951
----------
$ 5,644,790
==========
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and commissions $1,153,030 $1,060,536 $3,467,181 $3,460,634
Operating expenses 1,366,840 1,324,049 4,137,395 3,930,014
--------- --------- --------- ---------
Operating loss (213,810) (263,513) (670,214) (469,380)
--------- --------- --------- ---------
Other income (expense):
Interest income 217 742 7,089 2,511
Interest expense (4,209) (8,000) (23,708) (11,605)
Other, net (9,500) (52,700) (1,600) (112,215)
--------- --------- --------- ---------
(13,492) (59,958) (18,219) (121,309)
--------- --------- --------- ---------
Loss before income taxes (227,302) (323,471) (688,433) (590,689)
Income taxes 300 300 (2,700) (2,700)
--------- --------- --------- ---------
Net loss ($227,602) ($323,771) $(691,133) $(593,389)
========= ========= ========= =========
Net loss per common share ($0.03) ($0.03) ($.09) ($0.06)
========= ========= ========= =========
Weighted average common shares outstanding 7,646,853 9,782,177 7,646,853 9,782,177
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period Ended September 30, 1996 and 1995
1996 1995
---------- ----------
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $ 1,142,759 ($427,102)
--------- --------
Cash flows from investing activities:
Capital expenditures (435,455) (62,207)
Proceeds from disposal of assets 1,700 15,000
Advances to officers (28,970) -
Redemption of time deposit 10,000
Increase in other long-term assets (7,101) 4,794
--------- --------
Net cash used in investing activities (469,826) (32,413)
--------- --------
Cash flows from financing activities:
Proceeds from advances 1,169,500 200,000
Payments on advances (1,169,500) -
Advances from officer - 304,600
Payments on advances from officer (89,011) (142,393)
Principal payments on debt (8,039) (7,322)
--------- --------
Net cash used in financing activities (97,050) 354,885
--------- --------
Net increase (decrease) in cash and
cash equivalents $ 575,883 ($104,630)
========= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine-month period
ended September 30, for:
Interest $23,708 $11,605
Income taxes 300 300
Compensation paid through issuance of
restricted common stock $15,000 $ -
See accompanying notes to consolidated financial statements
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In the
opinion of the Company, such financial statements reflect all normal
recurring accruals and entries necessary for a fair presentation of the
results of operations and financial position for the interim periods
presented. Operating results for the nine-month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995, which is incorporated herein
by reference.
Loss per share is computed using the weighted average number of shares
outstanding, including common stock equivalents (stock options outstanding
during the period), except where the inclusions of these common stock
equivalents are anti-dilutive. In 1996 common stock equivalents have not
been used in computing the weighted average number of shares because they
are anti-dilutive. Fully diluted (loss)earnings per share does not differ
materially from primary earnings per share.
(2) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996, consists of the following:
Equipment $1,092,617
Construction in progress 13,750
Leasehold improvements 1,217,500
---------
2,323,867
Accumulated depreciation 1,121,361
---------
$1,202,506
=========
<PAGE>
SUPERMAIL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTANGIBLE ASSETS
Intangible assets at September 30, 1996, consists of the following:
Covenants not to compete $573,063
less accumulated amortization 522,873
-------
$ 50,190
=======
Goodwill $461,076
Less accumulated amortization 163,759
-------
$297,317
=======
Other intangibles $367,088
Less accumulated amortization 84,035
-------
$283,053
=======
(4) DEFERRED INCOME
On December 22, 1995, the Company amended its agreement with American
Express to offer MoneyGram services. This amendment extended the term of
the agreement for seven years beginning in 1996. As consideration for
signing this amendment, the Company received an up-front signing bonus of
$2,000,000 and future incentives for opening new MoneyGram service
locations. During the third quarter of 1996, the Company received $150,000
in new store bonuses. The signing and new store bonuses will be deferred
and amortized over the seven year life of the agreement.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents increased $575,883 to $2,791,192 for the nine-month
period ended September 30, 1996. Cash was provided by operating activities
of $1,142,759. Cash was used in investing and financing activities of
$469,826 and $97,050, respectively.
Net working capital increased $1,069,432 to $1,362,555 as of September 30,
1996 compared to $293,123 as of December 31, 1995. This increase was the
result of receiving signing and new stores' bonus of $2,000,000 and
$150,000, respectively, from American Express for amending the Company's
agreement to offer MoneyGram services for an additional seven years, and
building three new stores during the nine-month period ended September 30,
1996.
Cash used in investing activities is primarily the result of cost incurred
for construction of four new service locations. Two kiosks under its
license agreement with a retail department store chain on the east coast
were opened during the nine-month period ended September 30, 1996. One Mega
store was opened in April 1996 and another one was opened in September 1996.
Cash used in financing activities is primarily the result of repaying
advances from an officer received in 1995. In addition, the Company
received and repaid advances to outside parties during the nine-month period
ended September 30, 1996 of $1,169,500.
The Company is in the process of evaluating various financing sources
including working lines of credit. Obtaining one of these financing sources
will enable the Company to free up some of its available cash to be used for
planned expansion. The Company is also reviewing financing alternatives for
the purchase of a point of sale computer system.
RESULTS OF OPERATIONS
Nine-Months Ended September 30, 1996 compared to Nine-months ended
September 30, 1995
Revenues:
Revenues increased $6,547 to $3,467,181 for the nine-month period ended
September 30, 1996 compared to revenues of $3,460,634 for the same period in
1995. This increase was primarily the result of a decrease in check cashing
revenues of $251,216 which was offset by increase in money transfer and
other revenues of $171,038 and $93,745, respectively.
The decrease in check cashing revenues was primarily the result of
discontinuing the service to one of the Company's corporate
accounts, closure of six locations in 1995 and closure of five
Navajo Check Cashing locations in July 1996. These decreases were
offset by check cashing revenues at one of the Mega stores and
revenues at the three new service centers opened in 1996. Check
cashing revenues at the location servicing the corporate account has
decreased approximately $130,000. The Company decided to
discontinue the service to the corporate account due to the high
exposure to bad checks. The six locations closed in 1995
represented and the closure of Navajo Check Cashing represented
approximately $190,000 in decreased check cashing revenues for 1996
as compared to 1995. These decreases were offset by an approximate
$86,000 and $66,000 increase in check cashing revenues at one of the
Mega stores and the three new service centers opened in 1996,
respectively. In addition, one store has experienced a decline in
check cashing revenues due to increased competition.
<PAGE>
Over the past year, the Company has redefined its target market niche and
will concentrate on building Mega stores in metropolitan areas catering to
the immigrant population during 1996. These stores are larger, more visible
stores offering a wider range of services. Currently, the Company operates
five Mega stores, one of which was opened in April 1996 and another opened
in September 1996. These Mega stores should have a significant impact on
the check cashing revenues for the remainder of the year.
The increase in money transfer revenues is the result of an increase in the
amortization of deferred income offset by a decrease in revenues due to
closure of service locations.
Due to the receipt of the $2,150,000 bonus, the amortization of deferred
income increased approximately $226,000 in 1996. This increase was offset
by a decrease of approximately $38,000 in 1996 for service locations closed
in 1995 and closure of Navajo Check Cashing.
The $93,745 increase in other revenue is primarily the result of increased
sale of lottery and transit tickets.
Operating expenses:
Operating expenses consist of costs of providing services (cost of sales)
and general and administrative expenses. Total operating expenses increased
$207,381 or 5.3% for the nine-month period ended September 30, 1996,
compared to the same period for 1995.
This increase is primarily the result of increases in payroll and bad debt
of $189,901 and $49,720, respectively, offset by a decrease in professional
fees of $33,000.
Payroll expenses increased due to several factors including hiring a
management information systems manager, merit increases, increase in the
minimum store clerk wage from $6.00 to $7.00, significant overtime pay due
to staff shortages and payroll associated to the three new stores opened in
1996. These increases were offset by a payroll decrease for the six stores
closed in 1995 and the closure of five Navajo Check Cashing locations in
July 1996.
<PAGE>
Bad debt expenses increased due to an overall increase in the percentage of
uncollectible checks cashed from approximately 7% at September 30, 1995 to
11% at September 30, 1996 to check cashing revenues. It should be noted
that the bad debt percentage for the year ended December 31, 1995 amounted
to approximately 10% which is in line with the percentage experienced during
1996. This increase in bad debt expense is partially the result of opening
the Mega stores, which are high volume stores with a lower fee structure
which starts at 1% of the face amount of the check. Thus, the Company is
experiencing the same ratio of returned checks, but the impact as a
percentage of revenues are greater due to the lower fee.
Professional fees decreased as a result of reorganizing the accounting
department which made for a more efficient year end external audit.
Other income (expenses)
Overall, other net expense decreased $103,090 for the nine-month period
ended September 30, 1996 as compared to the same period in 1995. This
decrease is primarily the result of $108,000 in non-operating legal costs
incurred in 1995.
Third Quarter Ended September 30, 1996 Compared to Third Quarter Ended
September 30, 1995
Revenues:
Revenues increased $92,494 or 8.7% for the third quarter ended September 30,
1996, compared to the same period in 1995. This increase was primarily the
result of a decrease in check cashing revenue of $47,603 which was offset by
increase in money transfer and other revenues of $94,878 and $44,953,
respectively.
The decrease in check cashing revenues was primarily the result of
discontinuing the service to one of the Company's corporate accounts,
closure of six locations in 1995 and closure ofthe Navajo Check Cashing
locations in July 1996. These decreases were offset by check cashing
revenues at one of the Mega stores and revenues at the three new locations
opened in 1996. Check cashing revenues at the location servicing the
corporate account has decreased approximately $40,000. The six locations
closed in 1995 and the closure of the five Navajo Check Cashing locations
represented approximately $50,000 in decreased check cashing revenues for
1996 as compared to 1995. These decreases were offset by an approximate
$23,000 and $41,000 increase in check cashing revenues at one of the Mega
stores and the three new service centers opened in 1996, respectively.
In addition, one store has experienced declines in check cashing revenues
due to increased competition.
The increase in money transfer revenues is the result of increases in the
amortization of deferred income and revenue associated to new service
locations opened in 1996.
Due to the receipt of the $2,150,000 bonus, the amortization of deferred
income increased approximately $77,000 for the third quarter. Money
transfer revenues increased approximately $24,000 in 1996 for new service
locations opened.
The $44,953 increase in other revenue is primarily the result of increased
sale of lottery and transit tickets.
Operating expenses:
Total operating expenses increased $42,791 or 3.2% for the third quarter
ended September 30, 1996, compared to the same period for 1995.
<PAGE>
This increase was primarily the result of increases in payroll of $106,476
offset by decreases in insurance and professional fees of $32,843 and
$18,500, respectively. See nine-month results for discussion of payroll and
professional fees. In 1995, the Company added 10 locations to the insurance
policy and the resulting expense was charged to the third quarter of 1995.
This additional expense causes the third quarter of 1995 to be higher than
the third quarter of 1996.
Other income (expenses)
Overall, net other expenses decreased $46,466 for the third quarter ended
September 30, 1996 as compared to the same period in 1995. This decrease is
primarily the result of $54,000 in non-operating legal costs incurred in
1995.
Economy:
Management believes that the current economic conditions have not had a
significant impact on continuing operations nor will it have a significant
effect on future operations.
Inflation:
Management believes that inflation has not had a significant effect on
continuing operation nor will it have a significant effect on future
operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See legal proceeding described in the 1995 Form 10-KSB.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Items 4. Submission of Matters to a Vote of Security Holders.
None
Items 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a)The following are filed as exhibits to the quarterly report.
The numbers refer to the Exhibit Table of Item 601 of Regulation S-K.
2) None
4) None
11) Computation of earnings per share. See Note 1 of Part I,
Item 1, Financial Statements filed with this Form 10-QSB at
page 7.
15) None
16) None
18) None
19) None
20) None
23) None
24) None
25) None
28) None
(b) None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Supermail International, Inc.
(Registrant)
By /s/ K. Lee Date November 13, 1996
----------------------- ----------------------
K.Lee
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 BALANCE SHEET, STATEMENT OF INCOME AND NOTES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,791,192
<SECURITIES> 199,999
<RECEIVABLES> 753,604
<ALLOWANCES> 488,074
<INVENTORY> 0
<CURRENT-ASSETS> 3,713,105
<PP&E> 2,323,867
<DEPRECIATION> 1,121,361
<TOTAL-ASSETS> 5,644,790
<CURRENT-LIABILITIES> 2,350,550
<BONDS> 0
<COMMON> 458,811
0
0
<OTHER-SE> 868,140
<TOTAL-LIABILITY-AND-EQUITY> 5,644,790
<SALES> 3,467,181
<TOTAL-REVENUES> 3,467,181
<CGS> 0
<TOTAL-COSTS> 4,137,395
<OTHER-EXPENSES> (5,489)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,708
<INCOME-PRETAX> (688,433)
<INCOME-TAX> 2,700
<INCOME-CONTINUING> (691,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (691,133)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
